The Rules of Investing We Forget

In investing, there are rules necessary to play the game right especially if thinking long-term. The obvious one is Warren Buffet’s famous quote – “Rule No. 1: Never lose money; and Rule No. 2: Don’t forget rule No. 1.” Now the question begs, how can one not lose money? Well, it involves purchasing under-valued companies with solid financials and a wide moat during down-turns and staying consistent through-out.
As an investor, it is difficult to stay consistent given the swings and volatility in the market but they say the slow and steady wins the race. I would anchor more on the “steady” portion of that statement as being steady encourages consistency and not deviating from the strategy and philosophy employed through time while investing. Investing in the currently “hot thing” does not always pan out well for most, as seen in the recent Bitcoin craze some months ago. Bitcoin has lost over 80% of its value from its peak in December 2017. As with most things in life, there will always be something new but it is important to hash out the fundamentally sound companies that have generated consistent returns through time because at the end of the day, those are the ones left standing. Always being prepared by consistently researching companies will always benefit an investor. Websites such as provide daily stock market overview and tremendous research and valuation information to the general public.
Thriving when the stakes are high can be related to buying when there is blood on the streets. Money in the stock market is not made when times are good, money is made when the market is in a correction because that is when bargain deals can be made and your favorite stocks can be bought on sale. We had a correction in the market during the 4th quarter of 2018. A correction by definition is when the market declines by 20%. Those who bought the S&P 500 then would have see their investment increase by 12.6%.
In investing, it is always wise to purchase companies with a wide moat as these companies are more likely to generate superior returns over the long run. Warren Buffet once said “In business, I look for economic castles protected by unbreachable moats.” Companies that have a lot of competitive advantage making it difficult for its rivals to gain market share of that industry are regarded as moats. Companies such as Apple (AAPL), Facebook (FB), and Berkshire Hathaway (BRK.B) are widely known as moats within their industries. It is difficult to go wrong investing in a moat as they hold tremendous power and are able to impact their industry in a major way through technological breakthroughs from R&D, acquisitions, and consistent cash flow generation leading to continued dominance and leadership within its sector.
Employing these qualities while investing is necessary for continued success. It is better to the focused on the long term and platforms such as M1 Finance provide investors free trading of stocks, bonds, ETFs within taxable and retirement accounts.


Recent Posts